Reference no: EM132556539

Lies Inc. prepared the following report for the first quarter of this year:

Sales (2,500 units @ $2,800 per unit) $7,000,000,

Less:

Cost of Goods sold $3,840,000 ,

Gross Margin $3,160,000

Less:

Selling Expense $1,024,000,

Administrative Expense $1,000,00 ,$2,024,000

Income $1,136,000
ie's controller, Billy Baroo, studied the costs in detail, particularly focusing on cost behaviour.

Her analysis revealed the following:

1. Sixty-five percent of the cost of goods sold was variable with respect to the number of units.
2. Of the selling expenses, $800,000 was fixed; the remaining was variable with respect to the number of units.
3. All of the administrative expenses were fixed.

Required:

Question 1: Express the cost of goods sold and the selling expenses in terms of cost equations. Hint: y=ax+b

Question 2: Redo the above income statement using a contribution margin approach